From Phosphors to Pixels: The Rise and Fall of TV Empires
The tricky business of manufacturing TVs has bounced around the globe for decades. Will China be the next powerhouse, or maybe even the US?
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Nothing but Blue Skies?
It was January 4, 2006. The day before the official start of the annual Consumer Electronics Show. More than 150,000 people ready to pounce on acres of the latest technologies. Occupying nearly the entire east end of the Las Vegas Convention Center’s long Central Hall, is Sony. Curvy temporary walls dotted with countless flat panel TVs are practically invisible as thousands of journalists crowd the space for the last press conference of the day.
The future is looking bright for Sony. On display is the upcoming PlayStation 3, and even without definitive specs, it’s clearly poised to be a revolution. Inside it, a Blu-ray drive. Despite a looming format war with HD-DVD, the Sony-championed Blu-ray had the solid backing of several major studios—including Sony’s own—plus countless electronics manufacturers. Television offerings from small to large held promise for the 1080p evolution. Soon, new Chairman and CEO Howard Stringer would outline Sony’s vision of the digital future, "In 2006 sales of high-definition television sets will eclipse standard sets. It will put the shift from black and white to color to shame."
What he likely didn’t know, what few could know, was that 2006 would be the last year Sony had #1 market share in the TV business, the most visible moment of a downward slide resulting in billions in losses over the coming years.
The story of Sony’s rise and fall is not unique in consumer electronics; neither the first, nor likely the last, CE empire to stumble. From Japan to Korea to China, manufacturing titans vie for profit and supremacy in the global market, the balance of power shifting from company to company, country to country.
And that story starts much earlier, in America.
Header image by Geoffrey Morrison.
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From America to Japan
In 1968, the global television market was America, and America's TV was RCA. The Radio Corporation of America began in the early 20th century as a joint venture between several American companies with help from the US government. Thanks to lucrative government contracts and an army of engineers, RCA popularized, developed, or produced radios, color TVs, VCRs, satellite broadcasts, and more. RCA’s success and power grew as rapidly as the U.S. television market. At this point, almost 96% of U.S. homes had a TV. Other American brands competed strongly, but there was no question of RCA’s might.
As many companies do, RCA used its profits to expand, bringing oddly diverse industries under one roof, like frozen foods and rental cars. While it’s easy to anthropomorphize and say RCA lost focus, that seems to be exactly what happened. Despite the engineering talent and a trail of patents still important to this day, RCA lost its way. By the mid 80’s, the conglomerate was gone. Carrion left to the all-too-hungry corporate vultures. French company Thomson bought the rights to make TVs under the RCA’s name, something it sold off less than 15 years later.
But in 1968, all of that was the future. Few likely saw much threat from the upstart Japanese electronics companies, who had only started selling TVs in America a few years earlier. “No wonder this circuit failed; it says 'Made in Japan',” said a 1955 Doc Brown in Back to the Future III. During a time where nearly everything was made proudly in America, it was going to be an uphill struggle for any offshore company.
Identifying the specific causes of success is fodder for business schools and Tony Robbins seminars, but it’s clear the pieces were in place for Sony’s success. By 1968, Japan’s economy was exploding thanks to the post-war boom eventually known as the Economic Miracle. On one side, the powerful Ministry of International Trade and Industry was able to set up economic and trade conditions conducive for Japanese companies to compete on a foreign stage. While a strong driver, MITI could only do so much. The rest was left up to the keiretsu.
Keiretsu are groups of companies, in different industries, with strong cross-linked ties. They’re like a large, but close-knit, extended family. For example, a furniture manufacturer might have partial ownership in a logging company, while both are partially owned by a bank, and all three partially own a collection of retail furniture stores. By sharing common goals, companies in a keiretsu are motivated to work more efficiently together, for the greater profit of all. By having multiple levels of business able to swiftly and efficiently work together, while having access to extensive credit, keiretsu-bound companies flourished at home and overseas.
But while economic and political situations played a huge part in setting the stage, it’s important not to underestimate the value of a killer product. In 1968, Sony had that with the Trinitron.
Color television had been in development for decades. Some aspects had been just beyond the reach of the technology at the time. The problem had two sides, familiar to anyone who followed the development of HDTV: the display, and the content. RCA, thanks to its manufacturing might and ownership of NBC, was instrumental in getting both sides to work.
The main issue with early color televisions was one of brightness. After years of development, Sony introduced a different method for creating a color image, one that was brighter and visibly better.
Suddenly, Sony went from funky foreign company that made trick transistor radios to serious contender at the consumer electronics table. The Trinitron was, in many ways and to many eyes, a superior product. Screen sizes, which started small even by the standards of the day, grew rapidly. And Sony was just getting started. While eventually a failure, Betamax was a revelation to a world accustomed to watching TV only on the broadcaster’s schedule. Then, just a few years later, Sony secured its iconic status with the Walkman.
Sony entered the 90s not just as a successful electronics company, but as the electronics company. In a little over twenty years, the Sony had gone from upstart in the U.S. market to the most important consumer electronics company on the world stage. Brand recognition that rivaled Coke, sales in the billions, and diversified holdings: In 1987 Sony purchased CBS Record Group, and in 1989, Columbia Pictures Entertainment.
Just like it’s impossible to accurately attribute success, it’s hard to nail down failure. Countless articles and theories have been written about why Sony stagnated in the late 90’s—leading to billion-dollar-loss stumbles in the 00’s and 10’s—but the only important fact is that the company was on the wrong side of the two most important developments in consumer electronics since Sony itself launched the Walkman: Digital portable electronics, and flat panel TVs.
“There's no question that the iPod was a wakeup call for Sony. And the answer is that Steve Jobs was smarter at software than we are,” Sir Howard Stringer said in an interview in 2006. Sony’s first MP3 players were crippled by clunky software, mediocre hardware design, and a consumer-unfriendly requirement for the ATRAC audio codec (as opposed to the more common MP3). It was a miss so wide that a company with no success and little experience in the portable market pounced, and Apple has dominated ever since.
The bigger issue, though, was that throughout the 90s and into the 00’s, many companies invested heavily in infrastructure and manufacturing. Sharp and Panasonic, for example, built giant factories that would eventually allow them to scale up and build substantial amounts of flat panel TVs of all sizes.
Sony had little, if any, such investment. With no ability to take a leadership role on the next generation of televisions, and no plan to lead on the revolution taking place on the portable front, Sony invited its own downfall.
In reality, it was already too late. Waiting in the wings, a new power rising.
* "RCA 630-TS Television" 2012, Fletcher, used under a Creative Commons Attribution-ShareAlike license: http://creativecommons.org/licenses/by-sa/3.0/
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"Annyeonghaseyo," Says South Korea
For those in the West, it's hard to grasp the sheer size of a company like Samsung. At various times in its history, the variety and power in its portfolio of subsidiaries had few rivals in the world. A comparison could be made to GE, but for the comparison to be more apt, GE would have to be responsible for 20% of U.S. exports and make everything from tiny semiconductor chips to televisions to gas turbines to the tallest building in the world to some of the largest vessels ever constructed. Samsung does or has owned a life insurance company, an advertising company, retail chains, medical equipment companies, textile manufacturing, and a weapons manufacturer. The publicly traded subsidiary, Samsung Electronics, is listed as one of the top 20 largest corporations in the world. This ranking doesn’t include other major Samsung divisions like shipbuilder Samsung Heavy Industries or construction company Samsung C&T Corporation which recently built the 2,722-foot Burj Khalifa. The affiliated companies section of Samsung’s website lists no fewer than 33 companies, almost all with “Samsung” in their name. This behemoth conglomerate began much more humbly.
Started in 1938 by Lee Byung-chull as a trading company selling noodles and dried seafood, Samsung quickly expanded to other industries. The Korean War left a country divided and in turmoil. As the politics of South Korea settled, the government knew it needed to stimulate growth. In Japan, the U.S. broke up family-run businesses and monopolies. This action helped to set up the post-WWII corporate landscape that created the interconnected keiretsu that proved successful for decades. In Korea, the government instead fostered the growth of chaebols: family run conglomerates. Chaebols received government assistance, offering them opportunities other, smaller companies couldn’t get. These chaebols, gigantic in size and power, represent huge percentages of Korea’s economy to this day. While not having the keiretsu’s advantage of a close relationship with a bank (denied by law), the chaebols instead became tremendously vertically integrated across a wide variety of industries. Seeing the coming electronics age, Lee Byung-chull founded Samsung Electronics in 1969. In two years, the company was making black & white televisions. Two years later, it had designed its own. By 1978, Samsung Electronics had made over five million.
For many years, though, Samsung and other Korean products were relegated to the low end of the market. This would not be the case for long. As the 80’s closed and Sony diversified away from electronics, Samsung focused on manufacturing with its eye on the future. Lee Byung-chull’s son, Lee Kun-hee, became chairman in 1987, and started the company on the path away from inexpensive products towards becoming the industry leader. Knowing this was a significant task, and knowing how radically many aspects of his business would have to transform, he told his company, “Change everything except your wife and kids.”
Throughout its many vertical tiers, the company competed with the world, all supported by the power and money of Samsung corporate.
Because of its investment of billions of dollars in semiconductors and a fixation on engineering, Samsung poised itself to be a leader in the coming flat panel TV era before it even started. Among consumers though, Samsung still didn’t have the cachet of the Japanese brands. Reviews at the time showed that the company's televisions were still a step behind their Japanese peers. Samsung didn’t yet have that killer product. At CES 2006, while Sony touted its gaming devices and e-reader, Samsung launched Bordeaux, a sleek and small “design-oriented” 32-inch TV with a stylish blue accent. In an era of uniform black and gray boxes, it was striking.
The risk paid off. “2006 was the breakout year for Samsung with their Bordeaux model, the LN-S3251D, which outsold all 32-inch models,” says Tamaryn Pratt , founder of Quixel Research. “It was the right price and really started the Touch of Color trend in TVs.”
“To our eyes the Samsung LN-S3251D is one of the best-looking LCDs available,” said CNET’s David Katzmaier in his review in August of that year. He concluded, “The 32-inch Samsung LN-S3251D/LN-S3252D may cost more than budget LCDs, but its eye-catching looks and impressive image quality help it pull away from the name-brand LCD pack.”
Already on the upward swing, but still fighting hard for market share, this TV helped put Samsung on the map not as just another TV manufacturer, but as a potential leader. Its knockout punch came two years later.
CES 2008, Samsung launched its killer product. Unlike Sony’s Trinitron, Samsung’s leap wasn’t in technology (though the TVs performed well), but in design. It was called, simply, Touch of Color: A deceptively simple red hint on clear plastic that marked a new era in TV design. This was the path Chairman Lee had directed for his company: “An enterprise's most vital assets lie in its design and other creative capabilities. I believe that the ultimate winners of the 21st century will be determined by these skills.”
The flat-panel TV of 2008 was not yet the commodity of today. Prices were still high, but design was at a minimum. Due to engineering constrictions, most panels had a thick bezel around the screen that made them appear more like big computer monitors than attractive furniture. Color choices ranged from black, to silver/gray. Red was gutsy. Red was eye catching. Red was different. Samsung had made its statement. No longer the follower, Samsung stood defiantly and said this is where TV design will go.
Suddenly, the drive towards thinner, more attractive bezels was everywhere. “Touch of Color was a real game changer,” says Bob Scaglione, former Chief Marketing Officer of Sharp Electronics. “It forced CE manufacturers to focus on design rather than just specifications.”
Samsung, having made its statement, kept moving ahead. In 2008, Samsung had already been the market leader in volume and in overall dollars for over a year. And that is only a fraction of Samsung Electronic’s success. In Q4 2012, Samsung estimated it sold 500 mobile phones every minute. The company's profit, including the semiconductor business, managed $8.9 billion for the same quarter.
All the while, Sony fell to a tiny fraction of its previous TV might, eventually reducing the number of different models sold, practically conceding many levels of the market. In 2011, Samsung bought out Sony’s half of a manufacturing facility they co-owned.
Over the last two years, Samsung has been over 20% total market share with televisions. With only one exception, it held a commanding lead over its closest competitors by over 10%.
That one exception, though, is perhaps a sign of things to come.
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"Ni Hao," Responds China
In 2002, no one had heard of V. Inc, and few had heard of founder William Wang. This small company based in Irvine, California had no manufacturing capabilities, and none of the research and engineering experience found at Samsung or Sony. Yet within just a few years, the company now known as Vizio would be fighting with Samsung for market dominance, heralding the end of China as merely the manufacturing arm for foreign companies.
Vizio’s business model was and is radically different from the other players in the TV industry. For decades, companies put tremendous capital into research and development, pouring resources into engineer’s slide rules and mice. The desire to be the most successful was built on the backs of creating the best products. Perhaps not necessarily the best picture quality, per se, but at least the best television most likely to sell. Then these companies would put their might into giant palaces of production, where thousands of TVs entered as raw materials and left a sellable product. From top to bottom, they owned, honed, and managed every layer of production. Vizio has none of that, yet it's the only company close to Samsung’s overall U.S. market share.
As Japan’s economy boomed, it became more and more expensive to produce products there. As prices fell and margins collapsed, a way had to be found to manufacture the items cheaper. Korea and Taiwan were the most obvious partners, and indeed companies there built many of the Japanese giants’ lower-end products. But as companies in Korea and Taiwan flourished with lucrative manufacturing contracts from the big Japanese companies, they branched out on their own. As their economies flourished, they too needed a new, cheaper place to manufacture goods. As strict Communist economic policies loosened, China, and the largest workforce in the world, beckoned.
Soon, thousands of factories all over the country churned out inexpensive hardware. Anything that could be made, would be made. At first, these goods were of middling quality. Like all new production locales, this wasn’t always going to be the case. These new companies quickly realized that if they made a quality product, they’d get the more lucrative manufacturing contracts.
William Wang saw this coming, and took spectacular advantage of it. Instead of one R&D team of finite size, Vizio has, in effect, multiple R&D teams, all employed by original design manufacturers (ODMs) in China. These companies compete with each other to build Vizio’s products. Instead of a product manager detailing design and specifications to an engineering team, Vizio would invite ODMs to submit a design, and Vizio would choose the best one, saving millions in R&D costs. As Wang explained in a 2010 interview, “We outsource TV design, manufacture and other matters to AmTRAN Technology Co., Ltd. and Hon Hai Precision Industry Co., Ltd., both of Taiwan, and to TPV Technology Ltd., a Taiwan-capital company in Hong Kong.” Gone are the days where Chinese manufacturing existed only to process orders. Now they design themselves many of the successful products we use here.
By not having a huge company, Vizio is able to keep overhead low, increasing profitability. “There's a difference between being lean and being cheap,” Wang said in 2007. “Being cheap is when you don't want to spend any money and just keep it yourself. Lean is keeping costs really low — our overhead is just 0.7 percent of sales. At the really big consumer electronics companies, overhead is usually 10 percent of sales, or more.”
Vizio is, however, a hybrid: based in America, but using design and production in Taiwan and China. The company showed what is possible when this ODM method is combined with smart marketing and distribution. The shift continues, however, and now Chinese manufacturers are starting to skip the middle man and are trying to get a foothold in the U.S. market themselves. Some, like Hisense and TCL, are using their own names. Others purchase partially forgotten names to use as cover in the American market.
“For Chinese companies, especially in the manufacturing business, going global is an inevitable choice if you want a sustainable growth,” said TCL Chairman and CEO Li Dong Sheng. “It is also important for the whole country’s economy. Chinese companies going global will contribute to the completion of China’s national economy structure and upgrading.”
If you asked the average consumer what they thought of goods produced in China, many would have some level of negative opinion. To think it will stay this way is folly. Twenty years ago, Korea was the maker of cheap electronics: “No-name” brands at bargain basement prices. Is there a question in anyone’s mind that Samsung and LG are now leaders in the TV space? Go back further. Remember Doc Brown’s sentiment about “Made in Japan”? The 1985 Marty McFly’s response was telling, “What do you mean, Doc? All the best stuff is made in Japan.”
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The Digital World Beyond
From its first serious foray into the TV market, it took Sony less than twenty years to go from near-obscurity to dominant force and household name. Samsung, a part of the flat panel market from the start, took it over in less ten. Vizio didn’t even exist before 2002, and already the company is the only serious rival for Samsung (in market share at least, in profit, Vizio is way lower).
It’s possible we’ll look back at CES 2013 as the start of the big push from China by Chinese companies. Unlike shifts in the past, however, there isn’t one single brand leading the charge alone. Depending on how you look at it, the capitalistic competition between different Chinese companies is either ironic, or indicative of how immense China is. It’s possible there won’t be a single Chinese electronics leader. But to assume there won’t be any serious Chinese competitors lacks any historical precedent.
From here, two outcomes are possible. A few Chinese companies will emerge to compete with the top-tier brands like Samsung, LG, Sony, and Panasonic. Not just on the price front, but on a quality and performance front (where they can). We’re seeing a marketing push beginning from the likes of Hisense and TCL, the latter buying the naming rights to the Hollywood’s famous Grauman’s Chinese Theater, now called the TCL Chinese Theater.
“Our goal is to gain a prominent position and make TCL a household brand in each of the categories of TV, mobile communication, and home appliances," says TCL’s Li Dong Sheng. So it’s possible, in less than 10 year’s time, we’ll talk about TCL or another Chinese company in the same breath as Sony and Samsung. At the same time, other brands, focusing on the low end, never achieve enough market share to be considered “competition” for the big brands.
Or, and this is perhaps even more likely, multiple Chinese brands hit the market, some working their way towards top-tier quality and performance, others focusing on the low end. All start taking serious market share from the Japanese and Korean companies. If this is the case, in less than 10 year’s time, the “market leader” may only be a fraction of a percentage higher than the rest.
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The Tiny Global World
Japan led the CE world for decades, taking that role away from the United States. It’s true, no televisions are made in the U.S. anymore (though many are assembled in Mexico, and there are hints of some assembly coming back to America). However, this isn’t to say that the U.S. is just a mere consumer of electronics. Much of the technological design work goes on here. Universal Display Corp, based in Trenton, NJ, is a major player in the development of Organic Light Emitting Diodes (OLED), which promises to be the next generation of televisions. QD Vision, based in Lexington, MA, have developed quantum dots, a new LCD backlight technology. The company is also working on a display that only uses quantum dots, possibly rivaling OLED in thinness and performance. Then there’s Analog Devices, AMD, Texas Instruments, Intel, Qualcomm, Silicon Image, and others. In fact, of the top ten semiconductor companies, half are American. An American company often designs the pieces that make your TV work, beyond the screen itself.
This shift away from manufacturing and a focus on design and engineering is already happening in Japan. Sony designs TVs, but other companies manufacture them. Other big brands do the same for many of their low-end models.
There is no doubt China already is an incredibly important player in the global electronics market. Japan, for a multitude of reasons, is not as important a player as it was. Like the United States, though, this isn’t to say Japan is not important. What we’re seeing, perhaps, is a true globalization of the electronics world. Like the bits and bytes that travel at light speed around the world, perhaps the future we’ll see is one of no country being the dominant force. Instead, multiple countries offer a different aspect to the overall CE zeitgeist. As products get too expensive to manufacture in China, who knows what new countries will get manufacturing next. Already we’re seeing manufacturing in Vietnam, Malaysia, and the Philippines. Some think the next step is Africa.
Televisions themselves are becoming less important as well, with tablets and smartphones taking a sizeable chunk of everyone’s discretionary budget. The history of consumer electronics may have followed the television, but the future will follow portable. Here, perhaps, we can see a glimpse of that future in Apple: Designing products in the United States, but using component suppliers from all over the world, with final assembly in China.
From RCA to Sony and from Sony to Samsung, no company stays at the top forever. Staying at the cutting edge of technology and product design is key. RCA led the world in televisions until Sony’s Trinitron leaped past. Samsung’s investment in manufacturing established the company as a leader in flat panel TVs, and its focus on design propelled them to the top.
While killer products are vital, but so are external factors. There’s little question government policies aided RCA, Sony, and Samsung’s success. RCA’s start as a “marriage of convenience” between government and private interests gave it a jumpstart in the burgeoning radio industry. Sony’s keiretsu ties, along with strong pro-trade government policies, helped the company launch onto the global market. Samsung’s chaebols established a massive and powerful base to build a global corporate empire. China’s government and its recent pro-business push has let many companies there compete on the world stage. Will these policies continue to assist Chinese companies, or instead will we see further movement towards true, widespread globalization?
“Over the past 40 years, we’ve seen a shift in TV market leadership from Japanese brands in 1990s, to Korean brands in 2000s,” says Steve Koenig, Director of Industry Analysis at the Consumer Electronics Association. “Today, we are seeing the rise of Chinese brands like Vizio, Hisense and Haier.”
Only time will tell if the market is just getting more global, or specifically getting more China. If history is any indication, that too will just be a trend in the pixels and phosphors of time.
Special thanks to Tamaryn Pratt at Quixel Research for help with specific unit sales data and overall trends for this article.
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